Mutual funds fees: It's time to shift to pay-for-performance

By Money Matters Editors

A trading colleague known by Money Matters Editors had a phrase that he used to cite when he heard a trading idea that was curious, at best.

He would say, “That makes no sense, whatsoever.” And the idea was usually subsequently tossed in the trash can.

The same can be said about guaranteed fees in the mutual fund industry, including management fees and load fees. Note that we said mutual funds, not hedge funds. Today, we’re addressing those funds that typical Americans have invested trillions of dollars in: mutual funds.

Simply, guaranteed fees for mutual funds must stop. They’re part of a pre-financial crisis era culture that lavished large salaries and bonuses on financial professionals….for non-performance – in other words guaranteed pay. That model has been discredited and that era is over.